This is the first article in the "Regular Folks" series. The focus is to explain the technical term Business Intelligence in a way that anyone can understand. Feel free to comment on the article and ask questions!
All companies face the same challenges in managing their business to generate profits. The typical questions that eventually come up are:
- How much money am I making?
- Are my sales trending up or down?
- Which products/services contribute the most to my profits?
- What products should I discontinue because the profits are too low?
- How can I lower my inventory levels so that they are consumed "just in time"?
The Problem
When a business sets up their accounting system, they focus on the minimal effort required to record sales and expenses. It takes a lot of effort to capture data about the specific items that are sold within your business and the associated effort for the items. If you really want to answer the types of questions listed above, it is going to be necessary to record detailed data.
Accounting systems do a great job of showing numbers and trends at a "summary" or aggregate level. However, if you really want to drill down into specific product/service categories or individual items, it's hard work. Many companies resort to keeping two sets of information: the official accounting "books" and separate spreadsheets with the details.
The Solution
If you capture data in your accounting system at the right level of detail, you can periodically extract the data and analyze it with software tools designed to help answer the important business questions. The extracted detailed data is called a data warehouse. Keeping a data warehouse separate from your accounting system means that you can perform all kinds of analysis that will not have a negative impact on the ability for others to continue using your accounting system.
A wide variety of software tools are available to analyze the data warehouse information by product/service category. The most frequent analysis is to show historical trends based on a timeline. The timeline can be set up to segment data by month, quarter, year, etc.
If you have ever used a Microsoft Excel pivot table, then you are already familiar with the concept. A pivot table is designed to show data aggregations over time periods. You can start drilling down into specific categories. For example, you want to see all detailed products that have been sold in a category called "Office Chairs". Once you see the data, you decide that you want to sort the data in descending sequence by profits.
Summary
The technical term that is most commonly used for this subject area is "business intelligence". Small businesses can perform a lot of this type of analysis using Microsoft Excel. However, as the business grows the amount of data to analyze makes it harder for Excel to manipulate the data. The next step up is to store the data warehouse in a database management system and use a business intelligence software package to analyze the data.
Search on the terms "business intelligence" and "open source business intelligence" to get a feel for the number of software options available.
Non Stop Portals has worked with several different business intelligence software suites. We have a variety of lower cost options available for small business. Contact us to learn more about how we can help you Manage Your Business By The Numbers.
